Wall Street has shown strong resilience this year in the face of longer-than-expected higher rates fears and soaring yields, underscoring economic optimism and steady inflows. With just a trading day left, the Nasdaq Composite Index has emerged as the top-performing index of 2023, gaining about 26%. Meanwhile, the S&P 500 jumped 12% and Dow Jones Industrial is up 1.6%.

Below, we have discussed some hot events of 2023 so far in detail with the stocks that investors can tap to make the most of the trends:

Hawkish Fed

The Federal Reserve, in its latest meeting, kept interest rates steady at a 22-year high in the range of 5.25% to 5.5%. However, it signaled one more hike this year and a reduction in the number of rate cuts forecast for the following year. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong. The unemployment rate has remained low. The U.S. banking system is also deemed to be sound and resilient.

Though inflation is easing, it remains elevated and above the Fed’s 2% target. The ongoing strength in the economy and surging oil prices threaten to revive inflationary pressure. In such a scenario, betting on dividend stocks would be beneficial. Even if the market is volatile due to uncertainties around the Fed’s future actions, dividend-paying stocks can provide a consistent income stream.

Based in New York, Postal Realty Trust Inc. PSTL is a real estate investment trust, which owns and manages properties leased to the United States Postal Service. It saw a positive earnings estimate revision of a couple of cents for this year over the past month and has an estimated earnings growth rate of 2.97%. Postal Realty has a Zacks Rank #2 (Buy) and a VGM Score of B.

Technology Wave

Technology has turned out to be the most profitable sector so far this year, driven by the artificial intelligence (AI) boom, easing inflation and a surge in “magnificent seven.” Bets that the Fed will soon end its tightening policy have also driven the sector higher. However, the hopes faded in recent months with the expectation of higher rates for longer than expected, pushing the sector down.

Wedbush analyst Dan Ives believes that the technology sector is poised to weather a prolonged phase of increased interest rates. Ives eyes the “biggest tech revolution in 30 years” on the horizon, with the new tech bull market kicking off. Additionally, any prospective reductions in interest rates — with the market forecasting at least two for the next year — coupled with the ongoing rise of AI and the wave of optimism for crypto from institutional investors will act as a major tailwind.

Investors should bet on the stocks that have been beaten down over the past three months but have a solid Zacks Rank #1 or #2 with a VGM Score of B or better. While there are many in the sector, Pegasystems Inc. PEGA, with a Zacks Rank #2 and a VGM Score of B, seems an intriguing option. The stock has plunged about 24% in the last three months, offering a solid entry point.

Pegasystems is a leading provider of Customer Relationship Management software that enables transaction-intensive organizations to manage a broad array of customer interactions. It saw a positive earnings estimate revision of 9 cents over the past 90 days for this year. Its earnings per share are estimated to double year over year.

Dollar Surge

The U.S. dollar index hit a 10-month high against a basket of major currencies. The combination of surging oil prices and the speculation of high interest rates for an extended period has driven the currency higher. In fact, the greenback has consolidated its position as the premier financial haven for investors worldwide amid growing concerns over a potential government shutdown.

Small-cap companies that primarily operate within the United States may be less affected by a stronger dollar. As these companies are more domestically tied, these are poised to outperform when the economy improves. Further, they are considered safer and better plays if political issues or economic turmoil creep into the picture as pint-sized stocks generate most of their revenues from the domestic market.

Carrols Restaurant Group TAST is the largest BURGER KING franchisee in the United States, with over 800 restaurants. It has operated BURGER KING restaurants since 1976. With a market cap of $360.7 million, the company has an impressive estimated earnings growth of 152.9% for this year. It has a Zacks Rank #1 and a Growth Score of A.

Oil Tide

After lagging for most of this year, oil has been surging in recent months on tightening supply conditions and the prospect of higher demand. Both benchmarks reached a 10-month high with more upside potential left.

The global oil market is expected to face the biggest deficit in over a decade and comes as the two major oil-producing nations, Saudi Arabia and Russia, extended their voluntary cuts through the end of the year. On the other hand, “world oil demand is scaling record highs,” said the International Energy Agency in a recent note. Strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity are driving demand higher.

Investors seeking to tap the current strength in oil prices may bet on Zacks #2 Ranked Baker Hughes Company BKR. It is one of the world’s largest oilfield service providers, with a market cap of $36.6 billion. Baker Hughes has an estimated earnings growth rate of 73% for this year and saw a positive earnings estimate of 4 cents over the past three months. The stock has a Momentum Score of B.
Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report

Pegasystems Inc. (PEGA): Free Stock Analysis Report

Baker Hughes Company (BKR): Free Stock Analysis Report

Postal Realty Trust, Inc. (PSTL): Free Stock Analysis Report

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